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UNIVERSITY OF ECONOMICS HO CHI MINH CITY VIETNAM INSTITUTE OF SOCIAL STUDIES THE HAGUE THE NETHERLANDS VIETNAM - NETHERLANDS PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS DOESREMITTANCEAFFECTONBEHAVIOUROF HOUSEHOLDS? ACASESTUDYOF TWELVE RURALPROVINCESINVIETNAM BY NGUYỄN NGÔ PHƯƠNG DIỆP MASTER OF ARTS IN DEVELOPMENT ECONOMICS HO CHI MINH CITY, October 2014 UNIVERSITY OF ECONOMICS HO CHI MINH CITY VIETNAM INSTITUTE OF SOCIAL STUDIES THE HAGUE THE NETHERLANDS VIETNAM - NETHERLANDS PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS DOESREMITTANCEAFFECTONBEHAVIOUROF HOUSEHOLDS? ACASESTUDYOF TWELVE RURALPROVINCESINVIETNAMA thesis submitted in partial fulfilment of the requirements for the degree of MASTER OF ARTS IN DEVELOPMENT ECONOMICS By NGUYỄN NGÔ PHƯƠNG DIỆP Academic Supervisor: Dr PHẠM THỊ THU TRÀ HO CHI MINH CITY, October 2014 DECLARATION This is to certify that the substance of this thesis entitled “Does remittance affected onbehaviourof households?: Acasestudyof twelve ruralprovincesin Vietnam”, which is submitted by me in fulfillment of requirements for the degree of Master of Art in Development Economic to the Vietnam – The Netherlands Programme I certify that to best of my knowledge, any help received in preparing this thesis, and all sources used, have been acknowledged in this thesis Nguyễn Ngô Phương Diệp ACKNOWLEDGMENT First of all, I would like to express my greatest appreciation to my supervisor, Dr Phạm Thị Thu Trà, for her advices, instructions and comments, patient guidance, as well as encouragement with all her heart during the time of studying and doing this thesis Without her guidance, I could not implement and complete my thesis I also would like to offer my special thanks to Dr.Phạm Khánh Nam and Lecturer Lê Anh Khang for the valuable suggestions and materials that help me to develop this thesis In addition, I would like to special thanks to all the lecturers at the Vietnam – Netherlands Program for their knowledge of all the courses during I studied at the program Besides my mentors, I would like to thank my friends who are always beside me and support for my thesis Last, but not least, I am very deeply grateful to my family Without their warm encouragement, support, and attention, I would not be possible to complete this dissertation ABBREVIATIONS ATE Average Treatment Effect’ ATT Average Treatment effect on the Treated BPM Balance of Payment Manual DID Difference in Difference FDI Foreign Direct Investment FEM Fixed-Effect Model IMF International Monetary Fund NPISH NonProfit Institutions Serving Household ODA Official Development Assistance OLS Ordinary Least Square PSM Propensity Score Matching TFP Total Factor Productivity USD United States Dollar VHLSS Vietnam Household Living Standard Survey VARHS Vietnam Access to Resources Household Survey WB World Bank ABSTRACT During the past decades, remittance becomes a new capital source in developing countries This capital flow which is increasing every year in the developing countries derived from origins such as exporting labors, or migration from countries with low income to countries with medium or high income Remittance considered the stable capital flow for economic growth to labor exporting countries or countries with huge migration, helps reducing poverty through increasing income ofhouseholds Until 1986, in most cases remittance received by households living in Ho Chi Minh city in Viet Nam, after 1986 remittance inflow is expanded to households living inrural areas of Viet Nam by labor exporting policy Up to now, remittance is increasing more and more, and it is also one of tools to alleviate poverty, and to enhance living condition of Viet Nam households So, the aim of this study will examine the effect ofremittanceon behaviours ofhouseholds receiving remittanceinruralVietnam Estimation of this effect based on impact evaluation method and data set ofVietnam Access to Resources Household Survey (VARHS) in 2006, 2008, and 2010 This data set was carried out by Institute of Labor and Social Sciences, a subsidiary of Ministry of Labor-Invalids and Social Affairs, in12ruralprovincesin North, Middle and South of Viet Nam such as Ha Tay, Lao Cai, Phu Tho, Lai Chau, Dien Bien, Nghe An, Quang Nam, Khanh Hoa, Dak Lak, Dak Nong, Lam Dong, Long An TABLE OF CONTENTS DECLARATION ACKNOWLEDGMENT ABBREVIATIONS ABSTRACT TABLE OF CONTENTS LIST OF TABLES LIST OF FIGURES 10 1 PROBLEM STATEMENT 11 RESEARCH OBJECTIVE 14 RESEARCH QUESTION 14 SCOPE 14 DATA 16 METHODOLOGY 16 THESIS OUTLINE 16 CHAPTER II - THEORETICAL FRAMEWORK 18 RELEVANT CONCEPTS AND BROADER ISSUES OF CONCERN 18 1.1 Remittance 18 2.1.2 Literature of migration and remittances 19 2.1.3 Theory of Remittances 23 2 LITERATURE REVIEW: REMITTANCES, INCOME, SAVINGS, ASSET, INSURANCE AND BORROWING 26 SUMMARY OF LITERATURE REVIEW 33 CONCEPTUAL FRAMEWORK 35 CHAPTER III - RESEARCH METHODOLOGY 36 PROPENSITY SCORE MATCHING 36 3.1.1 Assumptions of PSM method 37 3.1.2 Model Specification of Propensity Score Matching 38 3.1.3 Software 44 DIFFERENCE IN DIFFERENCE (DD) METHOD 44 3.2.1 Theory 44 3.2.2 Implementing DID 45 3.2.3 Model of this study 46 3.3 COMBINING PSM WITH DID METHODS 50 3.4 DATA 51 CHAPTER IV - EMPIRICAL ANALYSIS 55 DESCRIPTIVE ANALYSIS OF THE SAMPLE 55 EMPIRICAL RESULTS 58 2.1 Propensity score matching (PSM) model 58 2.2 DID model 63 2.3 Combining PSM Method and DID Method 68 CHAPTER V - CONCLUSIONS AND RECOMMENDATIONS 72 5 CONCLUSIONS 72 LIMITATIONS AND SUGGESTIONS FOR FURTHER RESEARCHES 73 REFERENCES 74 APPENIX A REMITTANCES DEFINED IN BALANCE OF PAYMENT OF INTERNATIONAL MONETARY FUND 80 APPENDIX B QUESTIONNAIRE 84 APPENDIX C PROPENSITY SCORE MATCHING METHOD 91 APPENDIX D DIFFERENCE IN DIFFERENCE METHOD 127 APPENDIX E PSM AND DID METHODS 147 LIST OF TABLES Table 3.1 Variables of Propensity score Matching 41 Table 3.2 Population in each province 42 Table 3.3 Weight of Population in VARHS 2006, VARHS 2008 and VARHS 2010 42 Table 3.4 Variables of Difference in Difference Method 49 Table 3.5 DID estimation between treatment group and control group 50 Table Number of HHs receiving remittance and receiving no remittance 55 Table Summary ofHouseholds with and without remittance 56 Table 4.3 Expected sign in PSM Model 57 Table 4.4 Expected sign of variables in DD model 58 Table 4.5 Summary of Average Treatment Effect ofon Treated Group 62 Table 4.6 Summary the impacts ofremittance by PSM method 63 Table 4.7 Results of DID Method in 2006/2008 66 Table 4.8 Results of DID Method in 2008/2010 67 Table 4.9 Results of PSM - DID Method in 2006/ 2008 70 Table 4.10 Results of PSM – DID Method in 2008/2010 71 LIST OF FIGURES Figure 1 Global Remittances Inflow 11 Figure ODA, FDI and Remittancein Viet Nam from 2000 to 2011 13 Figure Neo-classical mechanism leading to equilibrium 20 Figure 2 Motives for Remittances 26 Figure Example of Common Support 38 Figure An example of Difference in Difference 46 10 Table E.18: Model estimated by OLS Model in 2006/2008 Table E.19: Model estimated by Extended OLS Model in 2006/2008 157 Table E.20: Model estimated by The Simple Fixed-Effect Model in 2006/2008 Table E.21: Model estimated by The Extended Fixed-Effect Model in 2006/2008 158 Table E.22: Common support and balancing tests in 2008/2010 159 160 Table E.23: Model estimated by OLS Model in 2008/2010 Table E.24: Model estimated by Extended OLS Model in 2008/2010 161 Table E.25: Model estimated by The Simple Fixed-Effect Model in 2008/2010 Table E.26: Model estimated by The Extended Fixed-Effect Model in 2008/2010 162 Table E.27: Model estimated by OLS Model in 2008/2010 Table E.28: Model estimated by Extended OLS Model in 2008/2010 163 Table E.29: Model estimated by The Simple Fixed-Effect Model in 2008/2010 Table E.30: Model estimated by The Extended Fixed-Effect Model in 2008/2010 164 Table E.31: Model estimated by OLS Model in 2008/2010 Table E.32: Model estimated by Extended OLS Model in 2008/2010 165 Table E.33: Model estimated by The Simple Fixed-Effect Model in 2008/2010 166 Table E.34: Model estimated by The Extended Fixed-Effect Model in 2008/2010 167 Table E.35: Model estimated by OLS Model in 2008/2010 Table E.36: Model estimated by Extended OLS Model in 2008/2010 168 Table E.37: Model estimated by The Simple Fixed-Effect Model in 2008/2010 Table E.38: Model estimated by The Extended Fixed-Effect Model in 2008/2010 169 Table E.39: Model estimated by OLS Model in 2008/2010 Table E.40: Model estimated by Extended OLS Model in 2008/2010 170 Table E.41: Model estimated by The Simple Fixed-Effect Model in 2008/2010 Table E.42: Model estimated by The Extended Fixed-Effect Model in 2008/2010 171 ... will examine the effect of remittance on behaviours of households receiving remittance in rural Vietnam Estimation of this effect based on impact evaluation method and data set of Vietnam Access... applied to study the relationship of international remittance and per capita income in Vietnam The result of studies concluded that international remittance is an important factor in increasing... to saving, it also means that receiving remittance households income increases leading to appearance of saving motive In Nigeria, it was found that remittance help to increasing saving and asset